Acting over Defense Department objections, the Trump administration ensured that cash-strapped Kansas trucking company Yellow Corp. received a $700 million loan from the federal government in 2020, according to a House subcommittee report released Wednesday.
The report of the House Special Subcommittee on the Coronavirus Crisis said that in addition to interference from Trump administration officials, lobbyists for Yellow Corp. took advantage of his close ties to the administration to obtain a loan on terms so favorable that he violated the guidelines of the Corona Aid, Relief, and Economic Security Act (CARES Act).
Lawmakers earmarked part of the $2.2 trillion CARES Act, which was passed in 2020 to keep the economy afloat during the COVID-19 crisis, as financial assistance to businesses deemed essential to the maintenance of national security.
Yellow Corp., formerly known as YRC Worldwide, received 95% of the funds spent for this purpose. Treasury officials at the time justified the loan by saying that Yellow was providing shipping and logistics for the Department of Defense.
Announcing the $700 million loan, then-US Treasury Secretary Steven Mnuchin described YRC as a “critical supplier” to the Department of Defense.
But the subcommittee report said Defense Department career officials doubted Yellow Corp. is indeed critical to national security.
The report says Mnuchin requested an urgent call with then-Defense Department Secretary Mark Esper on June 25, 2020.
This was a day after Defense Department officials told the Treasury Department that it would not certify that Yellow Corp. would receive the loan. A Department of Defense analysis said other trucking companies could replace Yellow’s work for the federal government and were concerned about a Justice Department lawsuit alleging Yellow overcharged for its services to the federal government. Department of Defense.
Yellow settled that case last month for $6.8 million without admitting wrongdoing.
The report says that after his call with Mnuchin, Esper certified Yellow as essential to national security. On July 1, 2020, Yellow Corp. received the loan.
Representative James Clyburn, a Democrat from South Carolina who chairs the select subcommittee, said in a statement that Wednesday’s report was further evidence of the Trump administration’s inability to manage taxpayers’ money.
“Political appointees risked hundreds of millions of dollars in public funds against the recommendations of DOD career officials and in clear disregard of CARES Act provisions designed to protect national security and American taxpayers,” Clyburn said. in a press release. “The select subcommittee is committed to accountability to government officials and other unscrupulous actors who have sought to use a public health crisis as an opportunity for political gain and personal profit.”
In response, Yellow produced a letter from his solicitor, Marc Kasowitz, to Clyburn on Tuesday calling the report’s allegations “unsubstantiated” and “demonstrably false”.
“Despite Yellow’s voluntary and good faith efforts throughout to provide the Committee with the necessary documentary evidence for it to make a [sic] full and fair assessment, the Committee continues to question, without justification, Yellow’s eligibility and use of its CARES Act loan funds,” Kasowitz said. “In truth and in fact, and as this committee now knows without question, Yellow’s eligibility and use of its CARES Act funds are, were, and continue to be proper in all respects.”
Kasowitz, a New York attorney, has also represented Trump personally in various investigations into Russian interference in the 2016 presidential election.
The loan to Yellow Corp. over the summer of 2020 came at a precarious time for the company. For years burdened with debt, Yellow entered the pandemic on shaky financial footing with losses exceeding $100 million in 2019.
The company used the loan to cover payroll, health care, pension expenses and capital investments. Yellow said the loan helped keep employees on the payroll. The company then employed around 30,000 people, 24,000 of whom belonged to the Teamsters union.
In return for the loan, Treasury received nearly 16 million common shares of Yellow, making it the company’s largest shareholder with nearly 30% of its shares outstanding.
The loan raised a number of questions, including concerns about the Trump administration’s close relationship with Apollo Global Management, a private equity firm that had itself made a large loan to Yellow.
The subcommittee report states that as early as April 3, 2020, at the start of the coronavirus pandemic, White House officials forwarded Yellow’s loan application documents to Brian Morgenstern, Deputy Under Secretary of the Treasury of Trump, and asked him to call the CEO of Yellow.
“Days later, Yellow’s lobbyists wrote that the White House political director was ‘nearly giddy’ during a phone call with them about the prospect of working on Yellow’s loan application” given from the Teamsters angle, “referring to Yellow employing Teamsters members as drivers,” the report said.
Emails obtained by the subcommittee indicate that White House Chief of Staff Mark Meadows offered to call Mnuchin about Yellow’s loan request, and that Meadows had repeatedly spoken to Yellow’s lobbyists. in June 2020 about the company.
The report also says Trump personally spoke to union leaders about the loan, suggesting that Trump was involved in Yellow obtaining the loan, according to the subcommittee.
During its search for the loan, Yellow officials said it provided 68% of Department of Defense shipments. But the report says a Department of Defense analysis found Yellow’s share of its shipments was about half.
Defense officials also resented the Defense Department’s complaint against Yellow alleging the company was “systematically overcharged” for freight transportation services and hid the alleged misconduct for more than seven years.
This lawsuit, combined with the likelihood that the Department of Defense could use other trucking companies for its shipments, led senior Department of Defense officials to conclude that Yellow was not considered a company playing a role. essential to national security. Yellow got the loan anyway after politicians intervened, according to the report.
‘Hand in the cookie jar’
The subcommittee report blames Yellow for using funds meant to offset pandemic-related losses to invest in longer-term capital needs like trailers and trucks.
Before Yellow got the loan, its chief financial officer told the company’s creditors that he was looking for some $365 million to invest in new trailers and technology.
“While we had our hands in the cookie jar, we thought we were going to try and get some capex (capital expenditure) while we were at it,” wrote Jamie Pierson, then Yellow Corp’s chief financial officer. , in a May 1 post. 2020, note to creditors.
The subcommittee report notes that Yellow spent relatively little on capital expenditures before securing the Treasury loan. After receiving the loan, she significantly increased her capital expenditures.
The terms of the cash loan required Yellow to maintain quarterly EBITDA (earnings before interest, taxes, depreciation and amortization) of $100 million. As of March 31, that amount had risen to $150 million. In June, it rises to $200 million. In SEC filings, Yellow said it expects to be able to comply with those terms.
At the end of last year, Yellow had $1.6 billion in outstanding debt. The company has been losing money for years and more recently has been badly hit by the COVID-19 pandemic and rising inflation. In 2020, it racked up a net loss of $53.5 million on operating revenue of $4.5 billion. Last year, it posted a net loss in 2021 of $109.1 million on operating revenue of $5.1 billion.
Over the past few years, Yellow has embarked on an extensive restructuring plan that includes adding additional semi-trailers to its fleet and moving its various subsidiaries to a technology platform.
The company’s history dates back to 1924, when Oklahoma City businessman AJ Harrell founded a bus and taxi service which he called Yellow Cab Transit Co. In 2003, the company acquired Roadway Corp. of Akron, Ohio, and became Yellow Roadway Corp. It then became YRC Worldwide before taking on its current moniker.
In a recent SEC filing, Yellow listed an office in Nashville, Tennessee, as its headquarters. Prior to this, the company was headquartered at 109and Street and Roe Avenue in Overland Park, where he occupied a 10-story building.
The company, which employs 32,000 people in North America, still maintains a significant presence in the Kansas City area.